I’ve said it before, but I’m going to say it again: “Tax policy is Social policy”. In the 1970’s, there was a tax theory called the Laffer Theory. The Laffer theory basically states that there is one tax rate T that maximizes tax revenue. It was criticized by other economists as being too simplified and T is unknowable. Regardless, Reagan used it as part of his argument for lowering taxes.

With such a less than stellar resume, I still find it intuitively interesting, with some qualifications and explanations. The theory starts out simply. At a zero tax rate, you won’t collect any taxes and at a 100% tax rate you won’t collect any taxes because nobody will work. In between these extremes is an optimal tax rate T. First, I would substitute the word structure for rate. Any individual tax isn’t collected in a vacuum. We have many taxes from many authorities collected simultaneously. For this discussion, I would posit only those visible to the average taxpayer are relevant. I am going to limit my discussion to individual taxes because I have a different scenario in mind for corporate taxpayers. The T value for society is the sum of property, sales, state income, social security, medicare, and Federal income taxes. The key to the optimal T value is psychology, which will send most economists screaming into the night. Taxes can be adjusted upwards if the payer perceives increased value. This means additional taxes must be spent on things that are visible and direct benefit to the taxpayer. I believe we are well under the optimal T value. Also, the T value is a moving target. As we provide more tangible benefits from tax collection, the T value will increase.

The most obvious, to me, spending targets, visible to the electorate, are health care, social security benefits, and infrastructure. Moving down the list to climate change and education, I think these items will need a well thought out publicity campaign to help drive support for these issues. That doesn’t lessen their importance, it’s just a visibility thing.

My most basic premise in writing these essays is nothing takes place in a vacuum. If we have a healthy, educated electorate living in a safe environment, life would be so much better, and people would be willing to address new ideas and change. One can hope.

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